The Trans Alaska Pipeline was shut for a third day on Monday with no timeline for resuming oil flows after a leak forced producers to cut Prudhoe Bay output from 630,000 barrels per day to a trickle.
Oil prices rose 1 percent on Monday as the outage halted nearly 12 percent of U.S. crude output, and shares in BP, the major stakeholder in pipeline operator Alyeska Pipeline Service Co, fell 1.25 percent.
Alyeska discovered the leak in the basement of a pump station booster at the start of the pipeline in Prudhoe Bay early Saturday, and response crews have recovered nine to 10 barrels of oil from the building.
Alyeska has provided no estimate of when the pipeline would reopen or when normal oil production could resume.
We don't have a date for restart yet, said Tom DeRuyter, state on-scene coordinator for the Alaska Department of Environmental Conservation on Monday. The plan is to build a bypass line at the affected area, then use that to restart the system.
Past shutdowns of the 800-mile (1,280 kilometer) line have generally been short-lived, and tanker shipments from Alaska's Valdez port have not yet been affected, but the spill rattled markets on edge after a year of disasters for the U.S. oil sector.
Lawrence Eagles from J.P Morgan doubted the shutdown would last more than two to three days on engineering grounds, but the outage could be extended by government inspectors establishing the cause.
One of the clear messages from the Macondo oil spill in the Gulf of Mexico is that unplanned outage assessments will have to be increased going forward.
The disruption is the latest setback for Alyeska, which currently handles less than a third of the oil it did at its peak in the 1980s. It is also a fresh blow for BP, which has been under pressure following the Gulf of Mexico spill.
Analysts downplayed the significance of the shutdown for BP, which has seen its share price rebound 20 percent since the beginning of December on hopes that the worst of the U.S. spill is behind it, but said sentiment would be hurt in the short term. Shares in BP fell 1.25 percent, paring earlier losses of as much as 2.7 percent.
I think if BP had not had the Macondo incident last year then this would have just been a minor operational incident for the company but it's just under scrutiny because it's connected with everything else that BP's connected with, said ING Financial Markets analyst Jason Kenney.
MITIGATED OIL PRICE REACTION
Tankers loaded on schedule at the export terminal of Valdez, which has capacity to store 9.18 million barrels of crude, and output from Prudhoe Bay was reduced to about five percent of normal.
U.S. crude rose $1 a barrel to $89.04 a barrel in New York, with traders saying U.S. inventory levels were helping mitigate price reaction to the disruption.
I would think they'll find a way to bypass the problem section and get the line back up in a couple of days, said Tom Bentz, broker for BNP Paribas.
The market itself is telling us how serious they think it is. If supplies were tight, prices would be up $4 on the news.
Alyeska is owned by the companies which operate on Alaska's North Slope -- BP owns about 47 percent of the venture, while ConocoPhillips and ExxonMobil hold 28 percent and 20 percent respectively.
The pipeline ships crude from Prudhoe Bay to Valdez and carries all crude produced from Alaska's North Slope oilfields. Normally, about 43 percent of oil flowing through the pipeline belongs to ConocoPhillips, 30 percent to BP and 20 percent to Exxon Mobil.
The last time the pipeline was shut down unexpectedly was from May 25 to May 28, when a power outage at a pump station triggered a series of events that caused an estimated 210,000 gallons (5,000 barrels) of crude oil to spill out of the storage tank at Pump Station 9, located about 105 miles south of Fairbanks.
That shutdown lasted about 79 hours, and was the longest shutdown since a 66-hour shutdown for the Denali earthquake in 2002.
Oil flow through the line peaked in 1988 at over 2 million barrels a day, but output from Prudhoe Bay and other maturing North Slope fields has dwindled significantly since then.
(Additional reporting by Sarah Young and Alejandro Barbajosa; Editing by Jonathan Leff, Matt Robinson and Marguerita Choy)